Bitcoin Mining The Economics Of ...

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The economics of Bitcoin mining pools

The economics of Bitcoin mining pools submitted by bitireland to bitcoin_ireland [link] [comments]

My proposed theory of the economics of Bitcoin Mining and why mining for profit is not going to happen for the end consumer.

After investigating as many sites, stats, auctions, etc as I could find, I have a theory on what is happening:
With the advent of ASICs, companies have now captured control of something I don't think was meant to be captured. Specifically, ASIC manufacturers have a tremendous advantage to the public-at-large.
ASIC manufactures miners. When they declare a product, they open up pre-orders. The pre-orders pay for the manufacturing...AKA NO RISK. They project the difficulty by hiring someone to investigate pipelines with competitors to calculate the price they should charge for their units and do maybe a 5 or 10% profitability to the end consumer. So, with this price, you can somewhat calculate the ACTUAL delivery date of the product. Namely, look for what the difficulty would need to be for you to make a 10% profit...use that number to back into the date.
Here is the painful part. Now, imagine you the end user wants to do this...you have one unknown. The actual date when the unit is available and just how many are there. Because burn-in allows the company to earn BTC, they simply have a QA. In most dev orgs, QA is a sunk cost of development. But in this case, QA is actually profitable!
Wanna really screw with the manufacturers, let the IRS know because it is likely they are taking the R&D write-offs but not declaring the profits earned in BTC while they are testing.
SO, as I mentioned once before in a more venting manner, the ASIC manufacturers have found a way to take over BTC production and effectively gain the largest share of coins. They do it in the lab with equipment paid in pre-orders without risk of development, that has already been sold and ready to deliver to a willing customer. Its like buying a new car, disconnecting the odometer, using it for 50,000 miles as a taxi cab driver making the profits for that mileage, and then selling it as new to the used car customer.
submitted by AureliusBP to BitcoinMining [link] [comments]

The Economics of Bitcoin Mining, or, Bitcoin in the Presence of Adversaries [PDF]

submitted by moyix to Bitcoin [link] [comments]

The Economics of Bitcoin Mining

The Economics of Bitcoin Mining submitted by thussprach to Bitcoin [link] [comments]

The economics of Bitcoin mining

The economics of Bitcoin mining submitted by properal to btc [link] [comments]

The Economics of Bitcoin Mining

The Economics of Bitcoin Mining submitted by BitcoinAllBot to BitcoinAll [link] [comments]

Princeton University: The Economics of Bitcoin Mining or, Bitcoin in the Presence of Adversaries

submitted by cryptoevents to Bitcoin [link] [comments]

The Economics of Bitcoin Mining Centralization

The Economics of Bitcoin Mining Centralization submitted by vlarocca to Bitcoin [link] [comments]

The Economics of Bitcoin Mining or, Bitcoin in the Presence of Adversaries (WEIS 2013 paper)

submitted by Fredfin to programming [link] [comments]

Bitcoin miners won't upgrade to BU or Segwit until market forces make it an imperative

I want to talk about the economics of bitcoin mining for a bit. I hear a lot of confusion and debate about why it's taking so long to move bitcoin forwards, regardless of what path it takes, and there some important economic factors that I think help to explain it.
Miners can't afford to think about the future. A lot of miners are operating on very thin margins, in many cases buying the hardware they use to mine with loans to be paid by those same machines. In some cases it gets worse, they pre-sell bitcoins to be mined, so even if the value goes up, they may not reap all the benefits. This forces them to be very concerned about bitcoin's price today, and next week, much more so than in five years, or even one year. In order to survive they must be focused on the very near term. It can also place an oversized emphasis on tx fees.
Yes. Transaction fees matter. Yes, I know it represents a fraction of the reward for mining a block, but in arrangements like the one above that's where the profit is. They have to make sure the machines they already have running are going to pay for themselves, before the next antminer comes out and the global hash rate jumps again. It's a competitive marketplace, and that forces margins way down.
The point is that even if they are true bitcoin believers, and you need to be to get into the business in the first place, their thinking is driven by the need to stay in business, so they're going to prefer whatever guarantees their profits. If there were only one proposal overwhelmingly supported by all parties it might be different, but as it is they have every incentive to do nothing at all until they are forced to choose.
It's a testament to bitcoin's strength that even as hampered as the network is we're still seeing massive growth in the price of bitcoin. But miners will continue doing exactly what they've been doing right up until the moment where they stop making money, and then the network will upgrade. Probably after a big correction/crash that sees a lot of smaller miners selling off their hardware to larger pools who are able to reach consensus. As long as the price keeps going up though, it'll stay like this. I don't know how big the correction/crash will have to be to force a change, but until then this is what we get.
submitted by Twoehy to btc [link] [comments]

Hijacking Bitcoin: Routing Attacks on Cryptocurrencies

arXiv:1605.07524
Date: 2017-03-24
Author(s): Maria Apostolaki, Aviv Zohar, Laurent Vanbever

Link to Paper


Abstract
As the most successful cryptocurrency to date, Bitcoin constitutes a target of choice for attackers. While many attack vectors have already been uncovered, one important vector has been left out though: attacking the currency via the Internet routing infrastructure itself. Indeed, by manipulating routing advertisements (BGP hijacks) or by naturally intercepting traffic, Autonomous Systems (ASes) can intercept and manipulate a large fraction of Bitcoin traffic. This paper presents the first taxonomy of routing attacks and their impact on Bitcoin, considering both small-scale attacks, targeting individual nodes, and large-scale attacks, targeting the network as a whole. While challenging, we show that two key properties make routing attacks practical: (i) the efficiency of routing manipulation; and (ii) the significant centralization of Bitcoin in terms of mining and routing. Specifically, we find that any network attacker can hijack few (<100) BGP prefixes to isolate ~50% of the mining power---even when considering that mining pools are heavily multi-homed. We also show that on-path network attackers can considerably slow down block propagation by interfering with few key Bitcoin messages. We demonstrate the feasibility of each attack against the deployed Bitcoin software. We also quantify their effectiveness on the current Bitcoin topology using data collected from a Bitcoin supernode combined with BGP routing data. The potential damage to Bitcoin is worrying. By isolating parts of the network or delaying block propagation, attackers can cause a significant amount of mining power to be wasted, leading to revenue losses and enabling a wide range of exploits such as double spending. To prevent such effects in practice, we provide both short and long-term countermeasures, some of which can be deployed immediately.

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Economic viability of bitcoin mining using a renewable-based SOFC power system to supply the ... (current BTC/USD price is $9,702.08)

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Bitcoin-NG: A Scalable Blockchain Protocol

arXiv:1510.02037
Date: 2015-11-11
Author(s): Ittay Eyal, Adem Efe Gencer, Emin Gun Sirer, Robbert van Renesse

Link to Paper


Abstract
Cryptocurrencies, based on and led by Bitcoin, have shown promise as infrastructure for pseudonymous online payments, cheap remittance, trustless digital asset exchange, and smart contracts. However, Bitcoin-derived blockchain protocols have inherent scalability limits that trade-off between throughput and latency and withhold the realization of this potential.This paper presents Bitcoin-NG, a new blockchain protocol designed to scale. Based on Bitcoin's blockchain protocol, Bitcoin-NG is Byzantine fault tolerant, is robust to extreme churn, and shares the same trust model obviating qualitative changes to the ecosystem.In addition to Bitcoin-NG, we introduce several novel metrics of interest in quantifying the security and efficiency of Bitcoin-like blockchain protocols. We implement Bitcoin-NG and perform large-scale experiments at 15% the size of the operational Bitcoin system, using unchanged clients of both protocols. These experiments demonstrate that Bitcoin-NG scales optimally, with bandwidth limited only by the capacity of the individual nodes and latency limited only by the propagation time of the network.

References
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Personalized Difficulty Adjustment for Countering the Double-Spending Attack in Proof-of-Work Consensus Protocols

arXiv:1807.02933
Date: 2018-07-09
Author(s): Chi-Ning Chou, Yu-Jing Lin, Ren Chen, Hsiu-Yao Chang, I-Ping Tu, Shih-wei Liao

Link to Paper


Abstract
Bitcoin is the first secure decentralized electronic currency system. However, it is known to be inefficient due to its proof-of-work (PoW) consensus algorithm and has the potential hazard of double spending. In this paper, we aim to reduce the probability of double spending by decreasing the probability of consecutive winning. We first formalize a PoW-based decentralized secure network model in order to present a quantitative analysis. Next, to resolve the risk of double spending, we propose the personalized difficulty adjustment (PDA) mechanism which modifies the difficulty of each participant such that those who win more blocks in the past few rounds have a smaller probability to win in the next round. To analyze the performance of the PDA mechanism, we observe that the system can be modeled by a high-order Markov chain. Finally, we show that PDA effectively decreases the probability of consecutive winning and results in a more trustworthy PoW-based system.

References
[1] Satoshi Nakamoto, “Bitcoin: A peer-to-peer electronic cash system,” Consulted, vol. 1, no. 2012.
[2] Ephraim Feig, “A framework for blockchain-based applications,” arXiv preprint arXiv:1803.00892, 2018.
[3] Marta Piekarska Harry Halpin, “Introduction to security and privacy on the blockchain,” in Symposium on Security and Privacy Workshops, 2017 IEEE European Symposium on. IEEE, 2017.
[4] Ayelet Sapirshtein, Yonatan Sompolinsky, and Aviv Zohar, “Optimal selfish mining strategies in bitcoin,” in Financial Cryptography and Data Security. 2017, pp. 515–532, Springer.
[5] Ghassan Karame, Elli Androulaki, and Srdjan Capkun, “Two bitcoins at the price of one? double-spending attacks on fast payments in bitcoin.,” IACR Cryptology ePrint Archive, vol. 2012.
[6] Ghassan O Karame, Elli Androulaki, Marc Roeschlin, Arthur Gervais, and Srdjan Capkun, “Misbehavior in bitcoin: A study ˇ of double-spending and accountability,” ACM Transactions on Information and System Security (TISSEC), vol. 18, no. 1.
[7] Tobias Bamert, Christian Decker, Lennart Elsen, Roger Wattenhofer, and Samuel Welten, “Have a snack, pay with bitcoins,” in Peer-to-Peer Computing (P2P), 2013 IEEE Thirteenth International Conference on. IEEE, 2013, pp. 1–5.
[8] Chrysoula Stathakopoulou, “A faster bitcoin network,” 2015.
[9] Adrian E Raftery, “A model for high-order markov chains,” Journal of the Royal Statistical Society. Series B (Methodological), pp. 528–539, 1985.
[10] Andre Berchtold and Adrian E Raftery, “The mixture tran- ´sition distribution model for high-order markov chains and non-gaussian time series,” Statistical Science, pp. 328–356, 2002.
[11] Waiki Ching, Michael K Ng, and Shuqin Zhang, “On computation with higher-order markov chains,” in Current Trends in High Performance Computing and Its Applications, pp. 15–24. Springer, 2005.
[12] Michael K Ng and WK Ching, Markov Chains: Models, Algorithms and Applications, Springer, 2006.
[13] Wen Li and Michael K Ng, “On the limiting probability distribution of a transition probability tensor,” Linear and Multilinear Algebra, vol. 62, no. 3.
[14] Jen-Hung Tseng, Yen-Chih Liao, Bin Chong, and Shih-Wei Liao, “Governance on the drug supply chain via gcoin blockchain,” International Journal of Environmental Research and Public Health, 2018.
[15] Shih-Wei Liao, Boyu Lin, and En-Ran Zhou, “Gcoin:wiki, code and whitepaper,” https://g-coin.org and github.com/OpenNetworking/gcoin-community/wiki/Gcoinwhite-paper-English, 2014.
[16] Meni Rosenfeld, “Analysis of hashrate-based double spending,” arXiv preprint arXiv:1402.2009, 2014.
[17] Joshua A Kroll, Ian C Davey, and Edward W Felten, “The economics of bitcoin mining, or bitcoin in the presence of adversaries,” in Proceedings of WEIS, 2013, vol. 2013.
submitted by dj-gutz to myrXiv [link] [comments]

An Incentive Analysis of some Bitcoin Fee Designs

arXiv:1811.02351
Date: 2018-11-11
Author(s): Andrew Chi-Chih Yao

Link to Paper


Abstract
In the Bitcoin system, miners are incentivized to join the system and validate transactions through fees paid by the users. A simple "pay your bid" auction has been employed to determine the transaction fees. Recently, Lavi, Sattath and Zohar [LSZ17] proposed an alternative fee design, called the monopolistic price (MP) mechanism, aimed at improving the revenue for the miners. Although MP is not strictly incentive compatible (IC), they studied how close to IC the mechanism is for iid distributions, and conjectured that it is nearly IC asymptotically based on extensive simulations and some analysis. In this paper, we prove that the MP mechanism is nearly incentive compatible for any iid distribution as the number of users grows large. This holds true with respect to other attacks such as splitting bids. We also prove a conjecture in [LSZ17] that MP dominates the RSOP auction in revenue (originally defined in Goldberg et al. [GHKSW06] for digital goods). These results lend support to MP as a Bitcoin fee design candidate. Additionally, we explore some possible intrinsic correlations between incentive compatibility and revenue in general.

References
[1] M. Babaioff M, S. Dobzinski, S. Oren and A. Zohar. On Bitcoin and red balloons. In ACM Conference on Electronic Commerce, EC ’12, Valencia, Spain, 2012, pages 56-73.
[2] J. Bonneau. Why buy them when you can rent- bribery attacks on Bitcoin-style consensus. In Financial Cryptograpphy and Data Security - FC 2016 International Workshops, BITCOIN, VOTING and WAHC, Christ Church, Barbados, 2016. Revised Selected Papers, pages 19-26.
[3] M. Carlsten, H. A. Kalodner, S. M. Weinberg nd A. Narayanan. On the instability of Bitcoin without the block reward. In Proceedings of the 2016 ACM SIGSAC Conference on Computer and Communications Security, Vienna, Austria, 2016, pages 154-167.
[4] A. V. Goldberg, J. D. Hartline and A. Wright. Competitive auctions and digital goods. In Proceedings of SODA 2001, pages 735-744
[5] A. V. Goldberg, J. D. Hartline, A. R. Karlin, M. E. Saks and A. Wright. Competative auctions. Games and Econommic Behavior, 55(2): 242-269, 2006.
[6] J. K. Kroll, I. C. Davey and E. W. Felten. The economics of Bitcoin mining, or Bitcoin in the resence of adversaries. In Proceedings of WEIS, Volume 2013.
[7] G. Huberman, J. D. Leshno and C. C. Moallemi. Monopoly without a monopolist: An economic analysis of the Bitcoin payment system. https://ssrn.com/abstract=3025604, 2017
[8] R. Lavi, O. Sattath and A. Zohar. Redesigning Bitcoin’s fee market. arXiv: 1709.08881v1 [cs.CR] 26 Sep 2017.
submitted by dj-gutz to myrXiv [link] [comments]

Pitchforks in Cryptocurrencies: Enforcing rule changes through offensive forking- and consensus techniques

Cryptology ePrint Archive: Report 2018/836
Date: 2018-09-05
Author(s): Aljosha Judmayer, Nicholas Stifter, Philipp Schindler, Edgar Weippl

Link to Paper


Abstract
The increasing number of cryptocurrencies, as well as the rising number of actors within each single cryptocurrency, inevitably leads to tensions between the respective communities. As with open source projects, (protocol) forks are often the result of broad disagreement. Usually, after a permanent fork both communities ``mine'' their own business and the conflict is resolved. But what if this is not the case? In this paper, we outline the possibility of malicious forking and consensus techniques that aim at destroying the other branch of a protocol fork. Thereby, we illustrate how merged mining can be used as an attack method against a permissionless PoW cryptocurrency, which itself involuntarily serves as the parent chain for an attacking merge mined branch of a hard fork.

References
  1. J. Bonneau. Why buy when you can rent? bribery attacks on bitcoin consensus. In BITCOIN ’16: Proceedings of the 3rd Workshop on Bitcoin and Blockchain Research, February 2016.
  2. J. Bonneau. Hostile blockchain takeovers (short paper). In 5th Workshop on Bitcoin and Blockchain Research, Financial Cryptography and Data Security 18 (FC). Springer, 2018.
  3. K. Croman, C. Decker, I. Eyal, A. E. Gencer, A. Juels, A. Kosba, A. Miller, P. Saxena, E. Shi, and E. G¨un. On scaling decentralized blockchains. In 3rd Workshop on Bitcoin and Blockchain Research, Financial Cryptography 16, 2016.
  4. I. Eyal, A. E. Gencer, E. G. Sirer, and R. van Renesse. Bitcoin-ng: A scalable blockchain protocol. In 13th USENIX Security Symposium on Networked Systems Design and Implementation (NSDI’16). USENIX Association, Mar 2016.
  5. I. Eyal and E. G. Sirer. Majority is not enough: Bitcoin mining is vulnerable. In Financial Cryptography and Data Security, pages 436–454. Springer, 2014.
  6. A. Gervais, G. O. Karame, K. W¨ust, V. Glykantzis, H. Ritzdo rf, and S. Capkun. On the security and performance of proof of work blockchains. In Proceedings of the 2016 ACM SIGSAC, pages 3–16. ACM, 2016.
  7. A. Judmayer, A. Zamyatin, N. Stifter, A. G. Voyiatzis, and E. Weippl. Merged mining: Curse or cure? In CBT’17: Proceedings of the International Workshop on Cryptocurrencies and Blockchain Technology, Sep 2017.
  8. A. Kiayias, A. Miller, and D. Zindros. Non-interactive proofs of proof-of-work. Cryptology ePrint Archive, Report 2017/963, 2017. Accessed:2017-10-03.
  9. J. A. Kroll, I. C. Davey, and E. W. Felten. The economics of bitcoin mining, or bitcoin in the presence of adversaries. In Proceedings of WEIS, volume 2013, page 11, 2013.
  10. K. Liao and J. Katz. Incentivizing blockchain forks via whale transactions. In International Conference on Financial Cryptography and Data Security, pages 264–279. Springer, 2017.
  11. P. McCorry, A. Hicks, and S. Meiklejohn. Smart contracts for bribing miners. In 5th Workshop on Bitcoin and Blockchain Research, Financial Cryptography and Data Security 18 (FC). Springer, 2018.
  12. Narayanan, Arvind and Bonneau, Joseph and Felten, Edward and Miller, Andrew and Goldfeder, Steven. Bitcoin and cryptocurrency technologies. http://bitcoinbook.cs.princeton.edu/, 2016. Accessed: 2016-03-29.
  13. K. Nayak, S. Kumar, A. Miller, and E. Shi. Stubborn mining: Generalizing selfish mining and combining with an eclipse attack. In 1st IEEE European Symposium on Security and Privacy, 2016. IEEE, 2016.
  14. J. Teutsch, S. Jain, and P. Saxena. When cryptocurrencies mine their own business. In Financial Cryptography and Data Security (FC 2016), Feb 2016.
  15. Y. Velner, J. Teutsch, and L. Luu. Smart contracts make bitcoin mining pools vulnerable. In International Conference on Financial Cryptography and Data Security, pages 298–316. Springer, 2017.
  16. A. Zamyatin, N. Stifter, A. Judmayer, P. Schindler, E. Weippl, and W. J. Knottebelt. (Short Paper) A Wild Velvet Fork Appears! Inclusive Blockchain Protocol Changes in Practice. In 5th Workshop on Bitcoin and Blockchain Research, Financial Cryptography and Data Security 18 (FC). Springer, 2018.
submitted by dj-gutz to myrXiv [link] [comments]

Summary of Block size debate. What did I miss?

I think we're far enough into the debate now to understand the arguments from both sides. This is going to massively generalize the opinions into 2 categories, moderates and extremists.
Extremist anti's are against any change in protocol that would affect the economics of Bitcoin mining. The thing to understand about this small group of people is that they probably control a larger portion of mining power than the other groups. Their costs for network bandwidth and speed and their percentage of orphaned blocks (if they don't self limit) will increase. They are invested with the understanding of the current economics of scale. When the blocks start filling up people will pay to go first. The day when fees replace the subsidy is looked forward to by every Bitcoin miner. It is simply more profitable for them to live in a world of scarcity than abundance. This has to be addressed or some faction of miners WILL disrupt any attempt at a fork.
Moderate anti's have a significant problem with 20MB right off the bat, one time, see what happens, proposal. These antis seem to be much more comfortable with 8MB now that some math and a stress test has been performed. This is good progress towards consensus. While these anti's are concerned about Bitcoin's scalability, they do worry about disrupting the delicate economics of Bitcoin.
Those who are for the block size increase are rightfully concerned with scalability in a world where consumer level payment processors handle insane levels of transactions per second. In a perfect world Bitcoin would out class them and we'd live in a world with a single universal uncorruptible money.
These are the extremists of the pro debate. Their Bitcoin investment seems to depend on Bitcoin eventually being this universal global payment processor, handling every cup of coffee and international forex simultaneously. Their investment in Bitcoin seems to rest on it doing everything and so we must rush to compete with Visa and Paypal.
The moderates of the pro debate understand that like any protocol other protocols may be built on top of it and so Bitcoin doesn't need to be everything to everyone. However, it does need be possible for Bitcoin to grow at some pace. Hardware and networking will continue to improve and so we inevitably will see some increase. These individuals simply want to focus on when and how much is appropriate.
We desperately need to move past this and get on with discussions about adding side-chaining or tree-chaining. Have I missed anything?
submitted by acvanzant to Bitcoin [link] [comments]

Why Bitcoin and solar power can boost each other with win-win-win

First, I want to link a blog post which explains the connection of renewable energy and Bitcoin:
http://bitcoinwarrior.net/2013/10/bitcoin-and-solar-powe
If you think about it, it is not so surprising. In the present time, nations are paying energy sources which become scarcer and scarcer and which they cannot afford any more, with debts which they cannot pay back. Printing money or quantitative easing only moves the debt around, passing it to lower strata of the society, because it essentially creates more credit which cannot be paid. Dwindling energy resources and financial stability do not go well together.
And notions like "petrodollar" show quite clearly how much the current unsustainable monetary system is linked to an unsustainable energy system - other nations are pressured to use the dollar for energy purchases to keep its value high, so that the US can buy energy cheaply. Some day, this can only fall hard on everyone's feet.
Now, renewable energies fix the physics side of that - we need to generate energy in a more sustainable way, and it is becoming feasible and cheaper than buying fossil power.
Complementary, Bitcoin tries to fix the monetary aspect of this - it is debt-free money which can be handled without banks and central institutions, and can circulate globally.
Now, an interesting insight is that the economics of Bitcoin mining and renewable energies, specifically wind and solar power, match each other - it is economical to use renewable power for Bitcoin mining, and Bitcoin makes the installation of renewable power more economical. The main cause if this is that Bitcoin does away with the storage problem - you can't store electrical energy cheaply, but you can store very well bitcoins which you generate with it. This is a win-win.
This link explains it more:
http://eghamsus.co.uk/?p=118
The third point is that providing renewable energy tech to Bitcoin miners is already economical, and a good business opportunity. Here my third link:
http://www.solarminer.com/
(note that I do not support that specific company and cannot say whether they are good, the link is only to show the business opportunity.)
Existing reddit discussion is here:
http://www.reddit.com/Bitcoin/comments/1otntt/bitcoin_and_solar_powe
http://www.reddit.com/Bitcoin/comments/16x5at/are_any_of_you_miners_using_alternative_energy/
http://www.reddit.com/Bitcoin/comments/1vqpv5/i_am_a_solar_photovoltaic_business_owner_in_tn/
http://www.reddit.com/Bitcoin/comments/1ktk9i/so_my_100_solar_powered_asic_bitcoin_miner_is/
tl;dr: Solar power benefits from power-hungry, profitable enterprises which can flexibly adapt demand and store their products. Bitcoin mining benefits from cheap solar energy. Society benefits from decentralized, democratized global money. Big Win-Win-Win.
I am curious for your thougths...
Edit2: Some academic research papers on Bitcoin: https://en.bitcoin.it/wiki/Research
submitted by DrunkRaven to RenewableEnergy [link] [comments]

Bitcoin Q&A: The Economics of Mining Pools - Andreas Antonopoulos

Bitcoin Q&A: The Economics of Mining Pools - Andreas Antonopoulos submitted by LightningPlus to Bitcoin [link] [comments]

A Nightmare Scenario for Bitcoin

A Nightmare Scenario for Bitcoins
This scenario is inspired by the paper “The Economics of Bitcoin Mining, or Bitcoin in the Presence of Adversaries” by Kroll et al.
Imagine a company or nation which views Bitcoin as a threat, either to its profits or to its ability to tax an important sector of its economy. Call this entity: Hater Of Bitcoin, or HoB. HoB decides that it will destroy Bitcoin now, rather than waiting to see what damage it will do later.
Step 1: HoB spends the money to buy control over the two main producers of state-of-the-art Bitcoin mining machines (right now that seems to be CoinTerra and Kennemar & Cole). Let us say HoB can buy control of both companies for around $100 million dollars. Fine, HoB makes a billion dollars a quarter and has more than $10 billion in the bank, $100 million is not a problem.
Step 2: HoB reduces the delivery of all new Bitcoin mining rigs to a trickle, and implements a crash program to produce as many new mining rigs as possible in the next three months. This costs another $50 million.
Step 3: As the new mining rigs become available, HoB starts up new mining pools and they each grow to a modest size and then stabilize in computing power - everything seems innocent enough.
Step 4: Some months pass and HoB finally has 51% of the computing power of the Bitcoin network, distributed over 5 to 10 modest sized pools. Now, since the pools are secretly under the control of HoB, they work together. Because they have more hashing power than the rest of the world, the HoB pool gets to make double spends. HoB uses this power to rewrite the block chain on a series of high-profile transactions.
Step 5: The newspapers are “tipped off” by HoB that someone is doing double spends. Sad anecdotes about businesses who exchanged some valuable items for Bitcoins and then found that the transaction was removed from the block-chain 6 hours later, and they didn’t actually get the Bitcoins they thought they had received, are spread as widely as possible - and its true. Merchants quickly refuse all transactions involving Bitcoins, until the problem is “fixed”.
Step 6: The Bitcoin community is thrown into chaos. The realization that the 51% problem is real and facing them right now hits them like a 2x4 to the face, and there are no good solutions. There is no way to wall off the HoB mining pools, if they tried, the HoB pools would just rejoin the “new” Bitcoin network with new names and new IP addresses. And there is no way to change this aspect of the Bitcoin algorithm. The fact that a 51% majority controls future modifications to the block-chain is built into the heart of the code.
Step 7: The rational people dump their Bitcoins ASAP. The true believers hang on, hoping that the problem will go away - but HoB is playing for keeps. The true believers will lose essentially everything. Meanwhile the HoB mining pools continue to collect the majority of the new Bitcoins - not that they care - and HoB continues to mess with the block-chain. Most rational Bitcoin miners stop mining because it no longer makes any economic sense and the price is in freefall. HoB rides the Bitcoin jetliner all the way into the ground.
Step 8: Six months later, Bitcoin is worth about what it was in 2010, less than a cent per coin. HoB has spent $150 million and destroyed the paper assets of hundreds of thousands of Bitcoin owners. Sure, HoB COULD have spent that $150 million to mine thousands of Bitcoins which would have been worth millions at the pre-attack price, but HoB is looking to protect a current business which is pulling in billions a year. Its not even a close trade-off for HoB’s finance guys.
========== End of Scenario ===============
Speaking as an intellectual follower of Robert Nozik and Richard Epstein, I’m sympathetic to the ideas which underlie Bitcoin, but this scenario worries me.
What can Bitcoin miners and owners do? Any cryptocurrency based on the SHA-256 proof of work is vulnerable to this super-mining attack thanks, in part, to the fact that ASICs can generate hash values so much faster than normal CPUs and GPUs. It is possible that scrypt based currencies are somewhat less vulnerable but really, its just money. Buy enough computing power and anyone can own 51% and destroy a proof-of-work based currency. Bitcoin and all the clones, with their “most-work-wins” logic cannot avoid this problem.
The argument that “this does not make economic sense” - seems rather like the U.S. telling Russia that it doesn’t make economic sense to occupy the Crimea. This argument likely will not stop the Crimea from “joining” Russia in the near-term.
https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_computing_power
Note 1: I don’t offer any opinion on the legality of what HoB is doing. If HoB were operating out of Cyprus or Luxembourg, could it do this without fear of legal sanctions?
Note 2: If HoB waits and tries to destroy Bitcoin in 2015, at the current exponential growth in network hash power, the cost might be more than $1 billion. Then we move into the territory outlined by Kroll, et al. as to threats and the impact of threats on rational actors. In other words, if Bitcoin isn’t wrecked within the next year, this attack may not be feasible for any save the wealthiest entities on the planet. Link to the Kroll paper: http://www.weis2013.econinfosec.org/papers/KrollDaveyFeltenWEIS2013.pdf
Note 3: There are other cryptocurrencies which are less vulnerable to this attack (and yes, I do mean Ripple) but they aren’t Bitcoin.
submitted by Seaglass1 to Bitcoin [link] [comments]

Bitcoin Q&A: The economics of mining pools | Blockchained.news

Bitcoin Q&A: The economics of mining pools | Blockchained.news submitted by Thornsb to BLOCKCHAINEDNews [link] [comments]

AANTONOP: Bitcoin Q&A: The economics of mining pools

AANTONOP: Bitcoin Q&A: The economics of mining pools submitted by sexyama to crypto_currency [link] [comments]

Is mining Bitcoin profitable? Basic economics of cryptocurrency mining (Excel) The Economics of Bitcoin. BTC and BSV compared and debated. Is Bitcoin about to crash!!! Bitcoin and cryptocurrency mining explained - YouTube Bitcoin Mining The Economics of Bitcoin (Part 1)

The Bitcoin digital currency depends for its correctness and stability on a combination of cryptography, distributed algorithms, and incentive- driven behavior. We examine Bitcoin as a consensus game and deter- mine that it relies on separate consensus about the rules and about game state. An important aspect of Bitcoin's design is the mining mechanism, in which participants expend resources ... Bitcoin is a new technology and as such there is little to tell us at what point the spread between the price of Bitcoin and the cost of mining will force a correction. We don’t seem to be there ... The economics of mining Bitcoin. Stefan Dorresteijn 06 Dec 2017, 14:45 UTC . Bitcoin Mining . Cryptocurrency has been getting a lot of attention in mainstream media lately, leading to a large ... Genesis Mining: If Economic Crisis Deepens Bitcoin Will Shine as the New Gold. submitted by cryptolobe to cryptolobe . An Economics Education by Bitcoin - Part I. For those people who are new to Bitcoin, several other and better ways are available to start understanding it compared to this article; I’d suggest Wikipedia for beginners. So when the exchange rate, or rather the value of Bitcoins goes down, there is less incentive for Bitcoin miners to devote their computing power to Bitcoin mining because they could be using their super computers for more lucrative endeavors. And mining Bitcoins is an expense endeavor. It requires ever more sophisticated computer equipment as well as vast amounts of electricity to cool the ...

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Is mining Bitcoin profitable? Basic economics of cryptocurrency mining (Excel)

Today we investigate some simple economics of blockchain regarding mining difficulty and hashrate and the profitability of mining using various ASICs on three blockchains. A somewhat technical explanation of how Bitcoin works. Want more? Check out my new in-depth course on the latest in Bitcoin, Blockchain, and a survey of the ... Thanks for watching! For donations: Bitcoin - 1CpGMM8Ag8gNYL3FffusVqEBUvHyYenTP8 No prior knowledge of economics or computing is required. There is little academic writing on bitcoin. And this may be the first truly academic class on the topic. We want to put bitcoin in a ... Susan Athey: The Economics of Bitcoin & Virtual Currency - Duration: 32:44. Stanford Graduate School of Business 62,456 views. 32:44. 2017 Bitcoin Mining at Scale - Introduction - Duration: 30:58. ...

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